CBRE is the world’s largest commercial property brokerage and management company. Last week the company released its third quarter earnings and, unsurprisingly, were down 56 percent. The reason given for the decline was also no surprise; the real estate market has struggled with higher interest rates. The most affected business segment was property sales. CEO Robert Sulentic explained that “this decline was exacerbated by delays in harvesting development assets, which we will sell when market conditions improve.”
CBRE has not just been sitting around and waiting for the market to turn around. They have been using the time to buy back their stock, which they view as undervalued. So far, they have repurchased $1.4 billion in stock. This move reduces their cash reserves but helps buoy their stock price and gives them an opportunity to profit off of the shares if they are able to hold them until conditions improve.
The other thing that CBRE is doing in the face of declining revenue is cutting costs. This time last year, they announced a plan to cut about $400 million of expenses from their budget, $300 of which would likely be permanent. The majority of those cuts have come in the form of headcount reduction, which has left a lot of industry professionals looking to search for employment elsewhere.
CBRE has an incredible bird’s eye view of the global commercial property market. That means their prediction that a rebound will not likely occur until the second quarter of next year should be taken to heart. In the face of these headwinds, Sulentic has been focusing on their “resilient and secularly favored” business lines like Global Workplace Solutions. In last year’s third quarter report, they grouped Altus Power, a clean energy solutions provider, in that category. But this year, Altus has struggled; its stock is down around 60 percent from its highs in 2022.
CBRE is a large and resilient company. They are sitting on $1.3 billion of cash reserves and have around another $3 billion in credit. They will be fine. But the continued struggles of this global firm, along with their extended, gloomy outlook, is not a good sign for the industry. Like CBRE, other commercial property companies can look for new revenue lines outside of property sales and leasing. But as far as a market turnaround goes, it doesn’t look like that will happen any time soon.